Section 8 Company Registration in Kerala

A Section 8 Company is a legal entity registered under the Companies Act, 2013. Its primary objective is to promote arts, commerce, science, sports, education, research, social welfare, religion, charity, environmental protection, or similar purposes.

Unlike a private or public limited company, a Section 8 company does not distribute its profits to its members. Instead, it uses all its income and earnings to further its charitable objectives. The government grants a special license for this purpose, which adds to the company's credibility and public trust.

Understanding Non-Profit Organizations in India

In India, non-profit organizations primarily operate as Trusts, Societies, or Section 8 companies. Each of these structures serves a similar purpose but has a different legal framework. A Trust is a legal arrangement where property is managed by trustees for the benefit of others, governed by the Indian Trusts Act, 1882. A Society is an association of people who come together for a common purpose, registered under the Societies Registration Act, 1860.

A Section 8 company, on the other hand, is a corporate entity. It offers a more formal and professional structure, which often makes it more attractive to corporate donors and government agencies. Its governance is strictly regulated by the Ministry of Corporate Affairs (MCA), providing a high level of transparency. This is why many organizations prefer to register as a Section 8 company.

Key Features of Section 8 Companies

Section 8 companies come with unique advantages that set them apart from other non-profit structures. Below are the core features:

• No Profit Motive: The main goal of a Section 8 company is not to earn profits. If it does earn any income, it must use that income to achieve its stated objectives. It cannot pay dividends to its members.
• Charitable Objects: The company must have clear objectives that fall under the categories mentioned in Section 8 of the Companies Act, 2013.
• Increased Credibility: The corporate structure and strict compliance requirements give Section 8 companies a higher level of public trust. They are generally considered more reliable than other forms of non-profits.
• Perpetual Existence: A Section 8 company has a separate legal identity from its members. It continues to exist even if its members change, ensuring the longevity of its mission.
• Tax Benefits: These companies are eligible for tax exemptions under Sections 12A and 80G of the Income Tax Act, 1961. This means the company's income is exempt from tax, and donors can receive tax deductions on their contributions.
• No Minimum Capital Requirement: The Central Government has exempted Section 8 companies from the minimum paid-up capital requirement, which makes the registration process more accessible for new organizations.

Kerala, known for its high human development indices and strong sense of community, is an ideal place to establish a non-profit. The state's focus on social welfare, education, and healthcare provides a fertile ground for charitable work. Section 8 company registration in Kerala allows organizations to leverage this supportive environment for a meaningful impact.

• Local Impact and Community Focus in Kerala

Kerala faces several pressing challenges that demand localized, community-driven solutions. These include limited access to healthcare in remote districts, low literacy rates among tribal populations, and environmental threats such as deforestation and frequent flooding. By establishing a Section 8 company, one can directly engage with these issues and work alongside local communities to create a sustainable impact.

For example, a Section 8 company might:

• Promote sustainable farming practices in Idukki to combat soil degradation.
• Run a literacy program in the tribal areas of Wayanad, where access to formal education is limited.
• Offer affordable healthcare services in the underserved rural parts of Palakkad.

A local presence not only builds trust but also ensures initiatives are culturally sensitive and practically effective.

• Government Support and Initiatives for Non-Profits in Kerala

The Government of Kerala actively supports non-profit organizations through various grants and initiatives. The state's social justice, health, and education departments often collaborate with NGOs to implement welfare schemes. For instance, the Social Justice Department in Kerala works with NGOs to run care homes for the elderly, women, and persons with disabilities.

Registering a Section 8 company formalizes the entity, making it eligible for partnerships and funding opportunities essential for organizational growth. This legal status also facilitates access to Corporate Social Responsibility (CSR) funds from companies.

• Addressing Specific Local Needs through Section 8 Companies in Kerala

Kerala faces several unique challenges, including disaster relief, coastal conservation, and support for migrant workers. Around 8% of central Kerala, particularly a 190-km coastal stretch covering Alappuzha, Ernakulam, and Thrissur, falls under “high” or “very high” disaster risk.

A Section 8 company can specialize in these areas. An organization can be established to focus on flood preparedness and relief in districts like Alappuzha or on providing legal aid and social support to migrant workers in Ernakulam. The legal status as a Section 8 company demonstrates commitment and provides a professional advantage.

The process for forming a Section 8 company in Kerala is simple but includes specific legal requirements that must be fulfilled.

• Who Can Form a Section 8 Company in Kerala?

Any two or more individuals can come together to form a Section 8 company. The members can be Indian citizens, residents, or even foreign nationals. The company can also have a body corporate as one of its members. There is no maximum limit on the number of members.

• Minimum Requirements for Directors and Members

To complete the Section 8 company registration process, these minimum requirements must be met:

• • Minimum Members: A private Section 8 company requires at least two members, while a public Section 8 company requires at least seven members.
  • Minimum Directors: Must appoint a minimum of two directors. A director and a member can be the same person.
  • Resident Director: At least one of the directors must be an Indian citizen who has stayed in India for a minimum of 182 days in the previous calendar year.

The documents for Section 8 company registration are a critical part of the application process. Proper documentation ensures a smooth and fast approval from the Ministry of Corporate Affairs (MCA).

• Essential Identity and Address Proofs

For each director and shareholder, the following documents must be submitted:

• • PAN Card: A self-attested copy of the PAN card is mandatory for all Indian nationals.
  • Proof of Identity: A self-attested copy of a valid government-issued ID, such as a voter ID, passport, or driving license.
  • Proof of Address: A recent bank statement, electricity bill, or mobile bill (not older than two months) must be provided.
  • Passport-size Photograph: Recent passport-size photographs of all directors and members.

• Memorandum of Association (MOA) and Articles of Association (AOA)

The MOA and AOA are the foundational documents of a Section 8 company.

• • MOA: This document outlines the company's name, registered office address, main objectives, and the details of its members. The Memorandum of Association (MOA) for a Section 8 company must clearly state its non-profit objectives.
  • AOA: The Articles of Association (AOA) contain the internal rules and regulations for the company's governance. It includes details about the powers of directors, the rights of members, and how the company will operate.

• Specific Local Documents relevant to Kerala

While the general document requirements are the same across India, the Section 8 company registration address of the office in Kerala requires specific proof. A valid registered office address in Kerala must be provided.

• Proof of Registered Office Address:
  • If Rented: A copy of the rental agreement and a No Objection Certificate (NOC) from the landlord.
  • If Owned: A copy of the sale deed or property tax receipt.
  • Utility Bill: A copy of a recent electricity, water, or gas bill for the premises (not older than two months).

• Other Supporting Documents

• • An estimate of the company's income and expenditure for the next three years.
  • A declaration from a professional (such as a Chartered Accountant or Company Secretary) stating that the company's documents comply with the Companies Act, 2013.

The procedure to incorporate a Section 8 company in Kerala is entirely digital. The online registration for a Section 8 company can be completed efficiently from any location.

Step 1: Obtain DSC and DIN

The first step in the online registration for a Section 8 company is to obtain a Digital Signature Certificate (DSC) for all proposed directors. A DSC is a digital key that proves the director’s identity online and is used for signing all electronic forms. Simultaneously, a Director Identification Number (DIN) must be applied for each director who does not already have one.

Step 2: Apply for Name Approval (RUN Form)

A unique name must be selected for the company that reflects its charitable purpose

• The name must be different from any existing company or trademark.
• Submit up to two names through the RUN (Reserve Unique Name) form on the MCA portal (mca.gov.in).
• The MCA reviews the name and approves it, which is valid for 20 days.
• A good practice is to add words like "Foundation," "Association," or "Council" in the company name to indicate its non-profit nature.

Step 3: Register for Section 8 License (Form INC-12)

After the company name is approved, Form INC-12 must be filed with the Registrar of Companies (ROC). This form serves as the application for the license to operate as a Section 8 company and must be submitted along with the MOA, AOA, and the income and expenditure estimate.

The ROC in Kerala, located in Kochi, reviews the application carefully. This step is crucial and may take time. Once approved, the Ministry of Corporate Affairs issues a special six-digit license number.

Step 4: File Incorporation Application (SPICe+ Form)

The next step is to file the SPICe+ form, which is an integrated web form. This single form combines multiple applications, including:

• Application for company incorporation
• Allotment of DIN and PAN/TAN
• Application for GSTIN, EPFO, and ESIC
• Opening of a bank account for the company

The SPICe+ form streamlines the entire process, making it much more efficient. The signed MOA and AOA, along with all other required documents, are attached and submitted electronically to the MCA.

Step 5: Complete Post-Registration Compliance

Once the MCA approves the SPICe+ form, the company is officially registered. The Certificate of Incorporation, PAN, and TAN are issued. A current bank account in the company's name must be opened, and all post-incorporation requirements, such as filing a commencement of business declaration if applicable, must be fulfilled.

The overall cost for registering a Section 8 company in Kerala includes government charges and professional service fees. The total expense may vary depending on the complexity of the application and the services required. Below is a detailed breakdown:

Note: The total cost depends on factors like the number of directors, optional services, and professional guidance chosen. Planning helps manage expenses effectively.

While all three structures are suitable for non-profit work, a Section 8 company stands out for its unique benefits. Here is a clear comparison.

Legal Structure and Governance

• Section 8 Company: Governed by the Companies Act, 2013, and regulated by the Ministry of Corporate Affairs. It has a formal corporate structure with a Board of Directors, which provides enhanced governance and accountability.
• Trust: Governed by the Indian Trusts Act, 1882. It is a simple legal arrangement managed by trustees. Its governance is less formal than that of a company.
• Society: Governed by the Societies Registration Act, 1860. It has a managing committee or governing council. It is also a less formal structure compared to a Section 8 company.

Compliance Requirements

• Section 8 Company: Has the most rigorous compliance requirements. It must file annual returns (MGT-7), financial statements (AOC-4), and other forms with the MCA. This high level of compliance increases its credibility.
• Trust & Society: Have fewer compliance requirements. They generally need to maintain basic records and file an annual report with the local Registrar of Societies or Trusts.

Maintaining compliance is as important as the registration itself. Non-compliance can lead to heavy penalties.

• Regular Reporting to the Ministry of Corporate Affairs (MCA)

A Section 8 company must file the following forms with the MCA annually:

• • Form MGT-7: An annual return that contains details about the company's management, members, and shareholding.
  • Form AOC-4: A form for filing the company's financial statements, including the balance sheet and profit & loss account.

• Income Tax Filings and Local Regulations in Kerala

Section 8 companies must file their Income Tax Return (ITR) by the due date. The company must also comply with any local labor laws and other state-specific regulations if it employs staff in Kerala.

• Maintaining Statutory Records

Statutory registers must be maintained at the registered office. These records include:

• • Register of members
  • Register of directors and key managerial personnel
  • Minutes of board meetings and general meetings

Maintaining these records is a legal requirement and demonstrates good governance.